Caution Ahead: SDLT Group Relief and Striving for a Tax Advantage
SDLT group relief is potentially available for company and corporate groups who transfer property within that group. Where the property seller and purchaser are members of the same group at the time of completion, the purchaser can claim this highly valuable relief, where certain conditions are met (Part 1 of Schedule 7 Finance Act 2003).
However, where a transaction forms part of an arrangement where a primary purpose is to avoid tax, or it has not been done for bona fide commercial reasons, SDLT group relief is not available. In the important Tower One case, the tribunal clarified the restrictive nature of SDLT group relief.
What’s the background?
The case followed the transfer of a lease of a residential property development to a special purpose vehicle (SPV) for genuine commercial reasons, including to ring-fence risks and potential liabilities. However, it had been the view of the group’s tax advisers at PwC that if the development was transferred via a particular series of steps, a significant corporation tax advantage could be achieved.
The transfer was executed on that basis – this included the grant of a new lease to another group company at book value significantly lower than market value, and two subsequent transfers within the group. The group would have saved in the region of £44m in corporation tax had the transactions been effective. No alternative arrangements were considered for the transfer.
HMRC was not fooled. It reviewed the transfer and decided that SDLT group relief was not available. This meant that SDLT of £8m was payable. Unsurprisingly, the group resisted the HMRC’s assessment and appealed.
The First-Tier Tax Tribunal found on the evidence that the transfer was, in reality, part of a corporation tax scheme of which one of the main purposes was the avoidance of a tax liability. It was made clear that a ‘purpose’ will be a ‘main’ purpose if its achievement is one of the primary aims of the arrangements. Furthermore, it can be a ‘main’ purpose - even if it is not as significant a consideration as another main purpose.
Here, a huge amount of detailed planning by PwC went into implementing the arrangements, costing tens of thousands in professional fees. It was clear that tax avoidance became a main purpose of the arrangements. The company was chargeable to SDLT on £200m (the actual value of the land on completion).
Key takeaways
SDLT group relief is available to companies where there are genuine property transfers between group members. There will always be the need for wise tax planning, but where it is decided actively to seek a tax advantage in the course of the transaction, care must be taken to ensure there is no suggestion that avoiding tax is a key reason behind the arrangements. Specialist advice from property tax experts is vital.
The ruling also shows that even where there are genuine commercial reasons for the transfer, there is no guarantee group relief will be available – HMRC will review the land transaction return carefully before accepting it.
1Tower One St George Wharf Ltd v HMRC [2022] UKFTT 00154 (TC)
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